SINGAPORE (Sept 25): Lendlease Group, the Australian-listed developer, has launched the IPO of its global commercial REIT on the Mainboard of the Singapore Exchange.

The REIT manager, Lendlease Global Commercial Trust Management, is selling 387.5 million Lendlease Global Commercial REIT units at an offer price of $0.88 each. This consists of an international placement of 364.7 million units and 22.7 million units for the Singapore public.

See: Lendlease eyes Singapore REIT listing at 88 cents a unit; aims to raise $1 bil in total

In addition, cornerstone investors including BlackRock Inc, DBS Bank and Fullerton Fund Management Company, have agreed to subscribe to an aggregate of 453.8 million units.

The public offer opens at 9pm on Wednesday night and closes at noon on Monday. Trading will start at 2pm next Wednesday. Based on its IPO price, the REIT will have a market cap of $1 billion immediately upon its debut.

Lendlease Global REIT has an initial property portfolio of $1.4 billion, comprising 313 @ Somerset on Orchard Road and Sky Complex, a Grade A office in Milan, Italy.

The REIT is forecast to offer a distribution yield of 5.8% for FY2020 ending June 30, 2020. A distribution yield of 6% is expected for FY2021.

According to the Lendlease, Sky Complex is located in a key metropolitan area that is “considered to be one of the top destinations for the office sector in Europe by investors and office occupiers”.

Sky Complex is fully leased to Sky Italia under a triple net, 13-year lease structure in which all operating expenses are borne by the tenant, with an inflation-linked rental step-up clause. A triple net lease agreement means the tenant pays all expenses of the property such as real estate taxes, building insurance and maintenance.

Currently, Sky Italia is the REIT’s largest tenant in terms of gross rental income at 28.9% in June. Sky Italia is a satellite TV company, whose parent company Sky Limited was acquired last year by television broadcast network, Comcast.

According to Tony Lombardo, chairman of Lendlease Global Commercial Trust Management and chief executive of Lendlease Asia, there was a “a takeup over four million square feet” there last year, which was “the highest ever recorded” and an indication of thr property’s positive outlook.

As for 313 @ Somerset, Kelvin Chow, chief executive of the REIT manager, says the mall is designed to attract youths with stores and amenities like bowling alleys. He expects a higher footfall once the government’s Orchard Road rejuvenation plan kicks off.

To be sure, Lendlease also owns 20.1% of Jurong East Mall (Jem) and 30% of the recently completed mixed-use Paya Lebar Quarter (PLQ) in Singapore which were not included in the REIT.

“Hopefully, over time, as we work with various investors, the REIT may become the exit vehicle for PLQ and Jem too”, says Lombardo.

As to why Australian properties were not included in the REIT, Lombardo says, “When we looked at our Australian assets, and what we could put in the REIT, there wasn’t anything we had that was a completed asset from a development perspective that made sense to achieve the returns we were wanting to achieve.”

For now, he says the REIT will focus on the two assets it has and is in “no hurry” to buy more.

Lendlease, who is also the REIT sponsor, will own 28% of REIT if the over-allotment option is not exercised and will own 25.1% if the over-allotment option is exercised.